TaxTMI 
TaxTMI 
2023 (4) TMI 1207
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....E of the Income Tax Act, 1961. 3. The learned CIT(A) ought to have seen that the only business of the appellant is manufacture and sale of finished leather and allied products which was found as a matter of fact at the time of survey and the excess physical stock found at the time of survey was explained and offered by the appellant as generated out of business income of the current year and therefore the provisions of section 115BBE of the Act will have no application as the source for excess physical stock is attributable business. 4. The learned CIT(A) ought to have seen that during the entire survey proceedings and thereafter during the assessment proceedings the source for the excess stock was explained by the appellant as generated out of unaccounted business income which fact was never disputed by the survey team and therefore treating the entire stock as unexplained investment under section 69B is totally unwarranted. 5. The learned CIT(A) ought to have seen that the AO has not brought any contrary material on record to state that the source for excess physical stock was other than from business income and has formed the opinion based on conjectures and surmises. Whil....
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....inguishable on facts since in the instant case the computation of excess stock is based upon entries found in the books of account and that the entire sum has been brought to tax by crediting the same to P&L account. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice." 3. The brief facts of the case are that, the assessee is a partnership firm, which is engaged in the business of manufacturing and sale of finished leather and allied products. The assessee has filed its return of income for the assessment year 2018-19 on 14.02.2019, admitting total income of Rs. 6,39,80,090/-.A survey operation u/s. 133A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") was conducted at the business premises of the assessee firm on 14.03.2018. During the course of survey proceedings, inventory of physical stock was taken which resulted in excess physical stock of Rs. 5.08 crores. The statement u/s. 131 of the Act was recorded form Shri. M.Srinivasa Reddy, managing partner of the firm on 14.03.2018, where he had admitted the excess stock....
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....nd the source for purchase of said excess stock. Therefore, the AO opined that additional income offered towards excess stock found during the course of survey is assessable under the head unexplained investment u/s. 69B of the Act and thus, additional income of Rs. 5.08 crores has been treated as unexplained investment and levied tax as per section 115BBE of the Act. The relevant findings of the AO are as under: 6. The arguments of the assessee have been carefully considered. However the arguments of the assessee are not acceptable because of the following reasons: i) The assessee has not furnished any documentary evidence to substantiate the claim of the assessee that the entire amount of Rs. 5,08,00,000/- had been earned from regular business activity done during the current financial year only. ii) The physical stock available at the premises was duly inventorised during the course of survey. The excess stock was quantified by comparing it with the books of account. The quantification was done during the course of survey itself and the same is clearly evident from the statement recorded from the assessee as reproduced in para 5 above. iii) The assessee has failed to exp....
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....tified at the time of survey or entries passed in its cash book, journal or ledger for the value of such stock. In the circumstances, we do not find any reason to interfere with the order of the learned Commissioner of Income Tax (Appeals). appeal of the assessee stands dismissed." The Hon'ble Madras High Court, after hearing the submissions of the counsel for assessee and above findings of ITAT, observed as under in para 6 to 11 of its order dated 26/3/2019: "6. Having heard the learned counsel appearing for the Assessee, we are satisfied that no substantial question of law arises in the present case and the finding of facts of all the three Authorities concurrently rendered against the Assessee in the present case cannot be held to be perverse or wrong in any manner. These orders, therefore, deserve to be upheld and we do not find any merit in the Appeal of the Assessee. 7. However, before parting with, we may observe that there is a series of five provisions -viz., Section 69-Unexplained investments, Section 69A-Unexplained money, etc., Section 69B-Amount of investments, etc., not fully disclosed in books of account 69C Unexplained expenditure, etc. and 69D-Amount borr....
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....t he will have valid purchase Invoices from genuine and existing Sellers which is not possible. When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because such purchases had already been recorded in the books of accounts of the Assessee. Therefore, the excess stock, per se, has to be naturally brought to tax as 'undisclosed income' by itself and there is no question of any corresponding deduction from that in such cases. 10. In our opinion, the learned Tribunal as well as the Authorities below were justified in bringing to tax the Undisclosed Income under Section 69B/69C of the Act and such findings of fact do not give rise to any substantial question of law. The order passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench does not ensure to the benefit of the arguments advanced by the learned Senior Counsel as there also the learned Tribunal has rightly held that the value of excess stock of Rs.58,02, 095/- should suffer tax and by inclusion of those Stocks in the value of Closing Stock the Assessee has recognised income over and above recorded in its Books of Accounts. Such ....
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....es, how the proceeds were ploughed back to generate the unaccounted income of Rs. 5,08,00,000/- over the time to invest in unaccounted excess stock. Without tendering any evidence for it, it tries to force the department to assume that the unaccounted sum of Rs. 5,08,00,000/- was generated out of its business only. Such assumptions is not possible. In the lack of positive evidence for business income, the only possibility is to assess it as income from other sources. Similar issue had come up for consideration before the jurisdictional Madras High court in the case of Ms. SVS Oils Mills Vs. The Assistant Commissioner of Income Tax in ITA No.765 of 20 18 wherein it was clearly held that the investment in excess stock found s, should be assessed as undisclosed income and not as business income. It is well settled principle of law that if there is conflicting views rendered by different High Courts, the view taken by the jurisdictional High Court is binding in the jurisdictional area of the respective High Court. The Hon'ble Bombay High Court in the case of Subramaniam -vs.- Siemens India Ltd. (1985) 156 ITR 11 (Bom.) held that so far as the legal position is concerned, the ITO wo....
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....ed before the AO excess stock found during the course of survey was purchased and source for said purchases in out of business income with evidences like under invoicing of stock or purchases without any bills. In this case, the assessee has admitted excess stock found during the course of survey, but could not explain source of said stock. Therefore, the AO has rightly assessed difference as unexplained investment and levied tax u/s. 115BBE of the Act. In this regard, he relied upon the decision of Hon'ble High Court of Madras in the case of SVS Oils Mills vs ACIT (supra). 10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The fact with regard to the impugned dispute are that a survey operation u/s. 133A of the Act was conducted on 14.03.2018 and during the course of survey, inventory of physical stock was taken which resulted in detection of excess physical stock of Rs. 5.08 crores. A statement u/s. 131 of the Act was recorded from the managing partner of the assessee Mr. M. Srinivasa Reddy, where he had, in response to a specific question admitted that excess stock found during the course of survey is acqu....
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....the course of survey to ascertain whether source for such excess stock is generated out of business income or income from undisclosed source. 12. During the course of survey, excess stock of leather and allied products has been found and such excess stock was noticed when physical inventory of stock in trade of the assessee was taken up. Further, said stock is mixed with regular stock in trade of the assessee. The assessee has explained before the Assessing Officer that it could not immediately reconcile difference in stock and thus, to buy peace from Department, additional income has been offered under the head income from business, equivalent to the amount of excess stock found during the course of survey. The explanation offered by the assessee either during the course of survey or during the assessment proceedings is not negated with any other evidences to disprove the claim of the assessee that source for acquisition of stock in trade is other than business income of the assessee. Moreover, the assessee derives only one source of income from manufacturing and trading in leather and allied products, which is evident from income declared for the impugned assessment year and ear....
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....n its business. The survey team was also not identified excess stock separately, but was valued because the assessee could not reconcile the difference in stock in trade when compared to book stock. Further, the assessee has explained the source for excess stock and argued that it is out of current year income generated from the business. The explanation of the assessee was not disproved. Therefore, we are of the considered view that the facts of the present case are not applicable to the case laws relied upon to the Assessing Officer. 14. At this stage, it is relevant to discuss the decision of Hon'ble Rajasthan High Court in the case of Bajargan Traders vs PCIT (supra). The Hon'ble High Court considered an identical issue and held that when excess stock found during the course of survey is related to stock in trade dealt by the assessee, then investment in procurement of such stock is clearly identifiable and related to regular business stock of the assessee and thus, said investment in excess stock has to be brought to the tax under the head business income and not under the head unexplained investment. The relevant findings of the Hon'ble High Court are as under: "3. The Tri....
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....be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. Jajihasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon'ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found." 2.10. We have heard the rival contentions and perused the material available on record. During the course of ....
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....ion of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". In the result, ground No. 1 of the assessee is allowed. 3.2. The ld. AR of the assessee submitted that at the outset, it may be noted that the AO has made addition on account of notional interest of Rs. 1,39,366/-. There cannot be any addition on account of notional income as held by the Hon'ble Supreme Court in case of E.D. Sassoon & Co. & Ors. vs. CIT (1954) 26 ITR 27 and Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 where it was held that only real income can be taxed, hypothetical income cannot be taxed nor income can be taxed in vacuum. Therefore, the addition made by the AO is not as per law and the same be deleted. The ld. CIT(A) has confirmed the addition by stating that it is the disallowance of interest. It is submitted that the lower authorities have not disputed about the commercial expediency about the advance given to Smt. Rita Gupta. In fact, the advance was given to Smt. Rita Gupta in ....